European shares snap 4-week rally as higher oil prices temper strong earnings

FRANKFURT: European shares finished lower on Friday and snapped a four-week winning streak, as rising crude prices and renewed geopolitical tensions offset support from a resilient earnings season.

The STOXX 600 ended 0.2 percent lower at 657.86 and logged a 0.3 percent drop on a weekly basis.

Still, the euro zone benchmark was within 1 percent of a record high, having rallied about 3 percent in the previous four weeks, underpinned by better-than-expected second-quarter earnings.

Aggregate STOXX 600 earnings are now forecast to grow 23.4 percent, making it the biggest increase in nearly four years, as profits in the energy and materials sectors soared.

“Companies have been generating efficiencies in their business models and adapting to the increases in costs that they’ve seen. Consumers also have remained remarkably resilient, given the challenges facing them from higher energy costs,” said Michael Hewson, a senior market analyst at iForex.

The relatively smaller tech exposure in Europe has also worked in the region’s favour, as global investors look to the region while diversifying their portfolios away from AI-related stocks.

Data has also pointed to a broadly resilient economy as the region’s economy grew 0.4 percent in the second quarter from the previous three months, in line with economists polled by Reuters.

“This has led us to broaden our European equity exposure in multi-asset portfolios, taking profit on the incredible ride of European financials and broadening to all sectors across Europe,” said Laurent Clavel, global head of multi-asset at AXA Investment Managers, BNP Paribas Asset Management.

However, as Iran and the US remain at loggerheads over the control of the crucial Strait of Hormuz, oil prices are also likely to stay above pre-conflict levels, adding to uncertainty over longer-term impacts on corporate performance and the economy.

Healthcare stocks led sectoral declines with a 1.5 percent drop, with Zealand Pharma down over 5.8 percent. Defence stocks, on the other hand, gained 1.2 percent, with Rheinmetall up over 3.2 percent.

European software companies SAP rose 2.7 percent, Nemetschek climbed 8.4 percent and Temenos gained 1.8 percent.

A Reuters report that private equity firm Silver Lake is in talks to acquire US-based Workday rekindled investor interest in the group that had fallen out of favour on AI disruption concerns.

Among others, British insurer Aviva advanced 1.8 percent after beating first-half profit expectations. The STOXX insurance index added 0.8 percent.

Maersk added 8.7 percent and hit its highest in four years, extending strong gains after Thursday’s stronger-than-expected quarterly results and guidance upgrade.